Contribute To Your 401(K)

September 7th, 2006  |  Published in 401K

If you’re employed and your company offers a 401(k), take advantage of it! Your funds will be deposited tax deferred (meaning you don’t pay now, you pay when you retire and start withdrawing from it) so you will have a bigger pot to invest with initially. Plus, if your employer offers a company match, you will be getting free money in the form of an employer match when you do contribute to your 401(k). Who can say no to free money?

Are there any cases where you shouldn’t contribute to your 401(k)? Yes, if you cannot make payments on all of your existing debt or your bills then you should handle those first. You should not go farther into debt just to be able to save into your 401(k). For example, if you have $1000 in fixed costs a month in the form of rent and bills and you are thinking about falling behind to contribute and get a company match… don’t. Adding debt today is worse that not taking advantage of your 401(k). Sure, you are leaving free money on the table but in order to get that money you’re falling farther into the hole.

In most other cases, you should at least contribute enough to get all the free money your company is offering. If they offer to contribute 3% if you contribute 6%, then you should be kicking a minimum of 6%. If you’re just out of college and used to living the frugal life, consider increasing your contribution to something higher – you won’t feel the pinch one bit. It’s better to over-contribute when you’re young than under-contribute, the money is saved away and there’s more of it to grow.

So, contribute to your 401(k)!

  

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